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Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of
Federal-State Joint Board on
Universal Service
Petition for Reconsideration Filed
By USTA
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CC Docket No. 96-45
ORDER ON RECONSIDERATION
Adopted: October 31, 2001 Released: November 6, 2001
By the Commission:
I. introduction
1. In this Order on Reconsideration, we deny the request of the United States Telecom
Association (USTA) to reconsider portions of the Contribution Interval Order modifying the
methodology used to assess contributions that carriers make to the federal universal service
support mechanisms. Specifically, we deny USTA's request to reconsider the imposition of
additional filing requirements and the method of calculating contributions from carriers that either
under-report or over-report quarterly revenue. In so doing, we affirm our prior conclusion that
the provision of sufficient and competitively neutral funding for the universal service support
mechanisms depends on the timely submission of accurate revenue information from contributors.
II. background
A. Contribution Interval Order
3. On March 14, 2001, the Commission released the Contribution Interval Order
modifying the methodology used to assess contributions to the federal universal service support
mechanisms. The new methodology reduced the interval, from 12 months to six months, between
the accrual of revenues and the assessment of universal service contributions based on those
revenues. The Commission concluded that reducing this interval would allow contributions to
better reflect market trends influencing carriers' revenues. These trends include new providers
entering into the interstate marketplace and generating interstate revenues, as well as, existing
carriers experiencing declines in their revenue bases. In light of these trends, the 12 month
interval meant that a carrier's current revenue base may have significantly changed from the
historic revenue base upon which its current contribution obligation is assessed. For carriers with
declining revenues, this may have resulted in the need to increase their current collection rates to
satisfy contribution obligations assessed on higher historic revenues. In response to these trends,
the Commission adopted a revised methodology to further the goal of maintaining competitive
neutrality.
4. Under the revised methodology, the number of carrier revenue filings increased from
two (i.e., semi-annually) to five per year (i.e., quarterly and annual). The Commission directed
the Administrator of the fund, the Universal Service Administrative Company (USAC), to use the
revenue data provided annually by carriers in the FCC Form 499-A to true-up the quarterly
revenue data submitted by carriers during the prior calendar year. Carriers have up to three
months to file revised quarterly filings (Form 499-Q) to ensure accuracy. The Commission
directed that, if the combined quarterly revenues reported by a carrier are greater than those
reported on its annual revenues report, then a refund will be provided to the carrier based on an
average of the two lowest contribution factors for the year. If the combined quarterly revenues
reported by a carrier are less than those reported on its annual revenue report, then USAC shall
collect the difference from the carrier using an average of the two highest contribution factors
from that year. The Commission concluded that this would provide an incentive for carriers to
accurately report their quarterly revenues.
A. USTA Petition for Reconsideration
5. On April 23, 2001, USTA filed a petition for reconsideration of the Contribution
Interval Order. Specifically, USTA requests that the Commission reconsider its decision to
increase the number of revenue filings submitted by carriers to USAC. USTA contends that
increasing the administrative burden on carriers serves no purpose because the prior contribution
methodology satisfied the requirements of the Act. In addition, USTA requests that the
Commission reconsider its method of calculating additional contributions or refunds relating to
revenues that carriers either under-report or over-report to USAC. USTA contends that such
measures are punitive, particularly given the shortened timeframe by which carriers must now
report data. USTA also contends that such measures are unnecessary given the existing
prohibition on false statements under federal law. In the alternative, USTA suggests that if the
quarterly reported revenues and the annual reported revenues are within 10 percent, this method
not be used to calculate collections or refunds.
VI. Discussion
7. We deny the request of USTA to reconsider portions of the Contribution Interval
Order. We find that USTA has raised no new issues or facts to persuade us to reconsider the
decisions made in the Contribution Interval Order. Specifically, we conclude that the accurate
submission of quarterly revenue data is essential to ensure that sufficient contributions are made
to the federal universal service support mechanisms on a competitively neutral basis. The
Commission carefully considered the implications of imposing additional reporting requirements
on carriers in the Contribution Interval Order and concluded that such requirements were
necessary. In addition, we conclude that the method adopted by the Commission of calculating
contributions from carriers that under-report or over-report revenues provides an appropriate
incentive for carriers to accurately report quarterly revenues to USAC.
8. Reporting Requirements. We deny USTA's request to reconsider the Commission's
decision to increase carriers' reporting requirements. USTA's petition raises no new arguments
that would convince us to reconsider the conclusion that the benefits of substantially reducing the
contribution interval outweigh any increased administrative burden on carriers. Although the
Commission acknowledged that the prior contribution methodology was competitively neutral and
satisfied the requirements of the Act, as discussed above, the Commission concluded that
revisions were necessary to ensure that the contribution methodology remains competitively
neutral in light of recent changes in the telecommunications marketplace, such as the entry of new
carriers into the interexchange market and the declining revenue bases faced by some existing
carriers. The submission of quarterly revenue data allows us to reduce the interval, from 12
months to six months, between the accrual and assessment of revenues for contribution to the
universal service fund. The shortened interval between the accrual and assessment of revenues
therefore reduces the possibility that certain carriers will be placed at a competitive disadvantage
as they lose market share. As a result, the revised methodology furthers the Commission's goal of
maintaining competitive neutrality.
9. Under and Over-Reporting of Revenues. We find no basis to reconsider the method
adopted by the Commission to calculate refunds from carriers that over-report revenue or the
collection of additional contributions from carriers that under-report revenue. Contrary to
USTA's contention, we do not find the method of calculating such adjustments to be punitive. A
true-up mechanism merely ensures that carriers' contributions to the universal service mechanisms
are based on accurate revenue data over the course of the year. Moreover, the Commission
allows carriers up to three months after each filing to correct errors that appear on the Form 499-
Q. Thus, we find unpersuasive USTA's contention that carriers will be penalized as a result of
insufficient time to ensure the complete accuracy of the information submitted. Only if such
errors are not corrected in a timely fashion will USAC apply the refund and additional collection
rules. Based on the record before us, we have no reason to overturn the prior conclusion that
three months should be sufficient time for carriers to compute, and correct if necessary, revenue
information.
10. We affirm our conclusion that the methodology adopted in the Contribution Interval
Order encourages carriers to provide accurate data and discourages "gaming." For example, the
methodology will deter carriers that otherwise might be tempted to under-report revenue to
reduce their current contributions and free up capital for other uses. A carrier that did so would
be forced to contribute additional funds following the annual true-up based on the average of the
two highest quarterly contribution factors for the year. We are convinced that assessment of
contributions based on this higher contribution rate will reduce the incentive for such conduct
while giving carriers ample time to correct honest mistakes.
11. We are not persuaded by USTA's contention that it is sufficient to rely on existing
federal law prohibiting willful false statements to protect against abuse of our rules. The
methodology set forth in the Contribution Interval Order also provides incentives to carriers to
avoid negligent or careless errors in reporting revenues to USAC. In order to maintain sufficient
and competitively neutral support mechanisms, it is essential that carriers provide accurate
revenue information to USAC in a timely manner. For similar reasons, we also decline to adopt
USTA's alternative proposal to exclude from this calculation methodology those carriers whose
reported quarterly revenues fall within 10 percent of their reported annual revenues. This
proposed 10 percent margin of acceptable error may translate into significant contributions for
some carriers, who would be able to avoid payment by intentionally under-reporting their
revenues by 10 percent or less. Thus, USTA's proposal may provide carriers with a substantial
incentive to under-report their revenues. In light of the opportunity provided each quarter to
correct such errors, we believe that adopting this proposal would also be contrary to our goal of
encouraging carriers to report accurate information.
XII. ordering clause
13. Accordingly, IT IS ORDERED, pursuant to sections 1, 4(i) and 254 of the
Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i) and 254, and section 1.429
of the Commission's rules, 47 C.F.R. 1.429, that the Petition for Reconsideration filed April 23,
2001 by USTA IS DENIED.
FEDERAL COMMUNICATIONS COMMISSION
Magalie Roman Salas
Secretary